23 July 2024 : The Hindu Editorial Analysis

1. Survey signals for Budget

(Source: Indian Express; Section: The Ideas Page; Page: 11)

Topic: GS3– Indian Economy

Context:

India’s GDP growth for fiscal 2024 exceeded expectations at 8.2%, driven by robust tax collections and extra dividends from the Reserve Bank of India (RBI). Despite global risks and a subdued agricultural sector, India’s economy demonstrated resilience, supported by strong external buffers and healthy growth indicators in manufacturing and services. This sets the stage for the upcoming budget, although several macroeconomic nuances indicate underlying challenges.

Growth Indicators and Economic Resilience

• India’s fiscal space has expanded due to higher-than-expected GDP growth, improved tax collections, and extra dividends from the RBI.
• High-frequency data, such as the S&P Global Purchasing Managers’ Index (PMI) for manufacturing and services, reflects a positive growth trajectory.
• Corporate and bank balance sheets are also well-positioned to support further growth, suggesting a favorable economic setting for the upcoming budget.

Macroeconomic Challenges

• Despite the positive indicators, several macroeconomic challenges persist. Heightened global uncertainty, elevated food inflation due to climate risks, and a slow recovery in private investment are notable concerns.
• These factors signal the need for policy amendments in the budget. The global growth outlook remains optimistic, with the IMF forecasting 3.2% growth in 2024, but geopolitical uncertainties, increased indebtedness, and escalating tariff frictions pose significant risks that could impact India.

GDP Growth Projections and Fiscal Strategy

• For the current fiscal year, GDP growth is projected to moderate to 6.5-7%, aligning with CRISIL’s forecast of 6.8% and slightly below the RBI’s forecast of 7.2%.
• Elevated interest rates and regulatory actions to curb retail credit growth are expected to temper GDP growth. Fiscal consolidation efforts imply a lower stimulus to overall growth.
• The government is likely to maintain fiscal discipline, using some of the fiscal space to reduce the deficit and gradually lower debt.

Private Sector Investment and Consumption

• The Economic Survey notes that investments are largely driven by the government and households, with the private corporate sector yet to take a decisive lead.
• Despite healthy corporate and bank balance sheets, public investment in infrastructure, a competitive tax regime, and supportive policies like the Production Linked Incentive (PLI) scheme, private sector investment remains cautious.
• The budget may need to focus on improving infrastructure, logistics, and incentivizing research and development to attract private corporate investments.

Private Consumption and Rural Economy

• Private consumption, particularly in rural areas, has been sluggish, growing at just 4% last fiscal, the slowest in two decades except for the pandemic year.
• Factors like the hit to agricultural GDP and high food inflation have impacted consumption, but a normal monsoon could reverse these trends.
• However, urban consumer sentiment is weakening due to rate hikes and softening growth in services.
• The budget may need to support employment-intensive activities like construction to boost income and demand.

Employment and Skills Development

• The budget should focus on employment creation and bridging the skills gap, especially in manufacturing and in anticipation of disruptions from generative artificial intelligence.
• The Economic Survey highlights a slowdown in employment generation in the IT sector.
• Employment-intensive activities, such as construction, could augment income and demand in the short term, while long-term policies should enhance growth prospects and participation in the economy.

Food Inflation and Agricultural Vulnerabilities

• High food inflation remains a key concern, driven by the significant weight of food in the consumer basket and vulnerability to climate change.
• Heatwaves and changing monsoon patterns have made Indian agriculture more susceptible, creating risks to headline inflation and limiting the RBI’s ability to cut rates.
• The Survey calls for stronger price-monitoring mechanisms, higher production of essential crops, and improved storage and transport infrastructure to address food inflation sustainably.

Structural Reforms and Sustainable Growth

• Sustainable high growth requires acceleration of structural reforms, particularly in land, labor, and agriculture.
• These reforms, which fall under the Concurrent List, require coordinated efforts between central and state governments.
• The Economic Survey suggests that the economy can grow at 7% per year if structural reforms are built upon.
• The budget needs to address these long-term challenges while managing immediate macroeconomic concerns to ensure balanced and sustainable growth.

Practice Question:  Discuss the factors that contributed to India’s higher-than-expected GDP growth in fiscal 2024 and analyze the macroeconomic challenges that persist despite this growth. How should the upcoming budget address these challenges to ensure sustainable economic development? (250 words/15 m)

 2. Who’s the greenest of all?

(Source: Indian Express; Section: The Ideas Page; Page: 11)

Topic: GS3– Environment

Context:

The article draws a parallel between the fairy tale of Snow White and the contemporary climate debate, illustrating how developed nations often see themselves as the leaders in environmental sustainability until challenged by emerging realities. This metaphor sets the stage for a discussion on the complexities of global climate strategies, especially the divergent perspectives of developed and developing countries.

Climate Debate: Idealism vs. Realism

• The climate debate is increasingly polarized between climate idealists, who push for ambitious and immediate actions, and climate realists, who advocate for practical and achievable solutions.
• Developing countries like India find themselves at the center of this debate, balancing their economic development needs with global climate commitments.
• India’s energy demands are expected to grow significantly, challenging the notion that it is a major polluter while highlighting the need for a nuanced approach to sustainability.

Climate Adaptation and Mitigation Strategies

• Common strategies to combat climate change include climate adaptation, which involves adjusting to its effects, and climate mitigation, which focuses on reducing its causes.
• These strategies often emphasize shifting energy sources, adopting regenerative practices, and protecting ecosystems.
• However, there is a critical question about whether these strategies are optimal and truly in everyone’s best interest, especially given the historical context of emissions and resource use.

Historical Emissions and Responsibility

• India has consistently highlighted the principle of historical emissions, arguing that developed countries, which have historically exploited global resources, should bear a greater responsibility for addressing climate change.
• The climate pledges made by developed nations are often criticized for being insufficient, conditional, and profit-driven rather than genuinely aimed at green intensification.
• Recent discussions around the New Collective Quantified Goal (NCQG) at COP29 further underscore the reluctance of developed countries to commit to mandatory contributions.

Nature-Based Solutions

• The article emphasizes that true correction of environmental wrongs requires a return to nature-based solutions.
• This includes adopting sustainable lifestyles and consumption patterns that align with natural processes, such as plant-based diets and efficient agricultural practices.
• India’s per-capita carbon emissions are significantly lower than the global average, highlighting the need for developed countries to consider emissions on a per-capita basis.
• The Economic Survey’s Chapter 13 delves into these comparisons, advocating for a reassessment of consumption choices and their environmental impact.

Mission LiFE and Individual Responsibility

• Mission LiFE, introduced by Prime Minister Narendra Modi, promotes individual responsibility in the global climate narrative.
• The Economic Survey 2024 outlines ways to implement Mission LiFE through voluntary and policy actions.
• India’s traditional ethos of sustainability is reflected in everyday practices like using cloth instead of tissue paper and reusing household items.
• These small, individual actions can collectively make a significant impact, emphasizing the power of individual responsibility in addressing climate change.

Conclusion

• The article calls for a deeper introspection into consumption patterns and the root causes of overconsumption.
• It advocates for equanimity, or the ability to maintain internal stability while adapting to external changes.
• By embracing sustainable lifestyles and questioning the desire for excessive consumption, individuals can contribute to a more balanced and sustainable future.
• The article encourages readers to explore Chapter 13 of the Economic Survey for a detailed understanding of these issues and potential solutions.

Practice Question:  The global climate debate often sees a divide between climate idealists and climate realists. Discuss how developing countries like India navigate this divide, balancing economic development with climate commitments. (250 words/15 m)